BoA Governor comments on the latest IMF report

The Governor of the Bank of Albania, Ardian Fullani, participated in a conference with representatives of the International Monetary Fund in Albania and representatives of the Albanian government. The Governor of the BoA emphasised that he supports the conclusions of the latest IMF report on economic development in Albania during the last ten years, the risks in the future and their causes.
Related to the general economic situation, the BoA praised the Albanian economy for its stability. According to preliminary estimates, Albania anticipates the Gross Domestic Production (GDP) to continue growing at about six percent, as it did in 2007. It remains to be seen how the agricultural sector is going to respond to the increased food prices.
Mr. Fullani said that stable electricity supplies since the beginning of 2008 has had positive effects on the economy. Therefore, it is expected that the economy is going to perform better than it did during the last half of 2007. However, the energy supply remains a delicate problem and one of the main risks to future economic development.
During the last months, international inflationary pressures have continued to influence the Albanian economy. Due to these inflationary pressures, the prices of food, raw materials, and oil have increased during the entire final half of 2007 and the beginning of 2008. In general, the inflation rate in April was 4.4 percent, surpassing by 0.4 percent the threshold of 3 ѱ percent targeted by the BoA. The inflation rate struck hard adding to the increase of food and electricity prices in March 2008. However, the increase of electricity prices alone contributed some seven percentage points to the inflation rate for March. BoA predicts that inflation will remain at the same level during the coming months. Only by the end of 2008, is it expected that inflation will go below the threshold of the BoA’s targeted interval.
BoA thinks the government should pay attention to the current accounts deficit. Foreign trade for the first quarter of 2008 shows that despite a stable increase, exports are unable to balance the effects of increased imports.
For the near future, the BoA predicts that excessive pressure on the supply side will be larger than the pressure on the demand side. The latest developments in the international markets show a slow but steady increase in the prices of food, raw materials, and oil. However, inflationary pressures exist on the demand side also, in the form of rapid expansion of demand for new business loans.
The Governor of the Bank of Albania has declared that the government should take measures to alleviate the negative effects of the increase of food prices through direct economic help for those in need. However, Mr. Fullani warned that the program of economic help should include only the poorest groups in Albanian society. These measures should be thoroughly studied because these economic programs can produce side effects and stimulate a wage-inflation spiral.
Mr. Fullani declared the BoA has succeeded, so far, in containing inflation inside the targeted interval. BoA remains committed to act proactively according to specific conditions and circumstances. The man objectives of the BoA remain the long-term control of inflation and the financial stability of the banking system.